Paying for funeral expenses with a life insurance policy
If you carry life insurance, it may cover some or all of your funeral and the burial costs. The downside is that life insurance can take a month or longer to pay out, while you will be billed before the funeral takes place. It also does nothing to make your final wishes known to your loved ones, and leaves them with the difficulty of selecting a provider and making detailed arrangements during a time of grief.
Also, families often misunderstand their life insurance policies, and can be disappointed when they have expired or don't provide the coverage they expected for final expenses.
Term life insurance is a temporary insurance policy with an expiration date, usually between five and 30 years. If you die during the term of the insurance, your beneficiaries receive a pay out. It is most often carried by adults in the prime of life with dependent children or mortgages. Most older adults either do not qualify for term life insurance due to medical exam requirements, or the premiums are too expensive. If you believe your final expenses will be covered by a term life insurance policy, please check your policy to ensure that the premiums are current and it is not expired.
Whole life insurance is designed to cover income replacement and end-of life expenses like funeral costs and medical bills. As long as the premiums are paid, it covers you until you die. Premiums are typically higher than term life insurance, while the fixed pay-out amounts are usually lower. Health conditions can still prevent some older adults from qualifying, but instead of a medical exam it just requires medical questions to be completed during the application process.
Final expense insurance is a specific type of whole life insurance, also called burial insurance or funeral insurance, which pays a lump sum upon death and is specifically designed to cover funeral costs. It isn't intended for income replacement like other life insurance products. If you don't know what you want for your funeral, or can't bring yourself to discuss your wishes with a funeral provider, it is a good alternative to buying a prepaid funeral plan. But it doesn't lock in prices like a prepaid funeral plan does, nor does it help your family make the funeral arrangement process easier. Families sometimes find themselves with an insurance pay out that doesn't cover the complete funeral expenses.
None of the above will pay out in time to pay a funeral home bill. A family would need to pay the bill another way and wait for one of these plans to pay out and then reimburse themselves.
Paying for burial expenses with U.S. veterans benefits
For U.S. veterans in 2020, the U.S. Department of Veterans Affairswill pay a $300 burial allowance and $780 for a plot (for a nonservice-related death outside a VA hospital) or a $796 burial allowance and $796 for a plot (for a nonservice-related death at a VA hospital). However, these benefits are not automatic and they apply only when the veteran is being buried in a national cemetery. Even then, these allowances are usually not enough to cover all expenses, so veterans benefits usually need to be combined with cash or another type of coverage plan.
Read more about VA burial benefits here.
Last-resort options for paying for funeral expenses
The remaining alternatives for paying for funeral expenses are usually a last resort when death has occurred and there is no cash on hand.
A credit card. High interest rates make this not a great solution, but some families do take this route.
A bank loan. If you have good credit and are comfortable with taking on debt, you can apply for financing at a bank or credit union. This can take time when time is of the essence.
A family pool. Family members can come together and pool their money to help with funeral costs. Some families turn to crowdfunding sites like GoFundMe to make this process easier.
Frequently asked questions about the prepaid funeral cost breakdown
Understanding prepaid funeral costs doesn't have to be difficult. Here we answer a few questions.
How much do prepaid funeral plans cost?
Because prepaid funeral, cemetery or cremation plans set aside funds for specific products and services, the amount of the plan doesn't exceed the actual planned cost of the funeral. Unlike insurance plans, you stop paying your monthly payments when the plan has been fully funded. Prepaid funeral plans usually start in the low thousands and range up from there, depending on your wishes. They are usually payable over3 to10 years.
What do prepaid funeral plans cover?
A prepaid funeral plan is created by you, so it covers the things you decide are important. You can plan a simple gathering or a grand event. For traditionalists, it can include embalming, a premium casket, flowers and catering, and cemetery property. Or you could elect for a simple cremation and a mausoleum niche for your ashes. When you meet with a pre-planning professional, you'll learn about all of your options. Make an appointment.
What happens if you miss a prepaid funeral payment?
A prepaid funeral plan is similar to car insurance in that if you miss a payment, you receive a lapse warning. After 90 days of nonpayment, your plan may be cancelled. If that happens, you would still be able to use that money to fund future arrangements, but you would lose any price protection.
Do prepaid funeral plan payments affect your ability to qualify for Medicaid?
When you buy a prepaid funeral plan, it is generally excludable for the Medicaid spend-down process. Unlike traditional insurance, it won’t affect your ability to qualify for Medicaid. However, many states limit the amount you can put into a funeral plan to between $5,000 and $15,000. Pleasediscuss any concerns with yourpre-planning professional and your Medicaid caseworker to make sure your needs are met.
What happens if my prepaid funeral, cemetery or cremation provider goes out of business?
At Dignity Memorial, your money is kept safe by a third party (an insurance company or a trustee, not the funeral home) until the time of your funeral. Then it is given to the funeral provider to cover your funeral expenses at the time of need.
What happens if I move?
When buying from a Dignity Memorial provider, prepaid funeral and cemetery plans are easily transferred between one of our 1,900+ locations in 47 U.S. states, Canada and Puerto Rico when you move more than 75 miles away.
